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We are a multi-national biopharmaceutical and diagnostics company that seeks to establish industry-leading positions in large and rapidly growing medical markets by leveraging our discovery, development and commercialization expertise and our novel and proprietary technologies. We are developing a range of solutions to diagnose, treat and prevent various conditions, including point-of-care tests, laboratory developed tests (â€śLDTsâ€ť), molecular diagnostics tests, and proprietary pharmaceuticals and vaccines. We plan to commercialize these solutions on a global basis in large and high growth markets, including emerging markets. We have already established commercial operations in Chile, Mexico, and Spain, which are generating revenue and which we expect to generate positive cash flow and facilitate future market entry for our products currently in development. We also recently established pharmaceutical operations in Brazil. We operate a U.S.-based laboratory certified under the Clinical Laboratory Improvement Amendments of 1988, as amended (â€śCLIAâ€ť), with a urologic focus that we expect will serve as a commercial platform for the U.S. launch of OPKOâ€™s next generation test for the early detection of prostate cancer. In addition, we operate a specialty active pharmaceutical ingredients (â€śAPIsâ€ť) manufacturer in Israel, which we expect will play a valuable role in the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products. We continue to actively explore opportunities to acquire complementary pharmaceuticals, compounds, technologies, and businesses.

In late 2011, we acquired a novel diagnostic instrument system that provides rapid, high performance blood test results and enables complex tests to be run in point-of-care settings. The instrument, a novel microfluidics-based system consisting of a disposable test cassette that resembles a credit card and a small desktop analyzer, can provide high performance, central laboratory-grade blood test results within minutes and permit the transition of complex immunoassays and other tests from the centralized reference laboratory to the physicianâ€™s office or hospital nursesâ€™ station. We expect this point-of-care instrument system to provide near-term commercialization opportunities through the transition of existing laboratory-based tests, including prostate specific antigen (â€śPSAâ€ť), vitamin D and testosterone, to our point-of-care system. Longer term, we believe that this instrument system will serve as a platform for the commercialization of our proprietary molecular diagnostics tests.

We have already obtained a CE Mark for our point-of-care diagnostic test for PSA using our system in Europe and we intend to launch the PSA test in Europe in the second half of 2013. We intend to submit our application to the Food and Drug Administration (the â€śFDAâ€ť) for clearance of the PSA test and expect to begin marketing the test in the U.S. in 2014. We are also presently working to add additional panels for our point-of-care system, including testosterone and vitamin D, and we believe that there are many more applications for the technology, including infectious disease, cardiology, womenâ€™s health, and companion diagnostics.

We are also developing our next generation prostate cancer tests for both our point-of-care diagnostic system, as well as the laboratory setting in the U.S. utilizing OPKOâ€™s novel panel of kallikrein biomarkers and associated algorithm (â€ś4Kscoreâ„˘â€ť). The panel of markers included in the OPKO 4Kscoreâ„˘ is the result of a decade of research by scientists in Europe and the U.S. and the biomarkers markers have been demonstrated in more than 8,000 patients to predict the probability of positive biopsies in men suspected of having prostate cancer. Extensive studies have shown that the use of this novel panel of kallikrein biomarkers and algorithm may reduce the number of unnecessary prostate biopsies by 50% or more, avoiding the frequent complications of pain, bleeding, and infection, which sometimes require hospitalization. In October 2012, our strategic partner, International Health Technology, Ltd. (â€śIHTâ€ť), launched sales of lab services using this novel panel of biomarkers in the United Kingdom as part of IHTâ€™s ProstateCheckâ„˘ program. In December, 2012, we completed the acquisition of Prost-Data, Inc., a CLIA-certified laboratory doing business as OURLab (â€śOURLabâ€ť). In addition to continuing to operate as a full-service medical laboratory specializing in urologic pathology, OURLab provides us with the commercial platform to support the U.S. development and commercial launch of the 4Kscoreâ„˘ for the detection of prostate cancer as a LDT.

Our innovative molecular diagnostics platform for the development and commercialization of accurate, easy-to-use, blood-based tests utilizes an innovative method for the rapid identification in small blood samples of disease-specific antibodies that can serve as diagnostic biomarkers for a wide range of diseases. We have demonstrated in initial studies that our platform has the ability to identify diagnostic biomarkers for a wide range of diseases to which the immune system reacts, including cancers, autoimmune diseases, neurodegenerative diseases and infectious diseases. This technology platform may also allow for the development of vaccines and highly targeted therapeutic agents. Our most advanced molecular diagnostic test utilizing this technology is a simple blood test for Alzheimerâ€™s disease, a debilitating neurodegenerative disease for which there are limited diagnostic options available today. Based on initial clinical work, as described in the journal Cell in January 2011, our Alzheimerâ€™s test demonstrated an ability to identify and differentiate Alzheimerâ€™s patients by detecting elevated levels of antibodies that appear to be unique to Alzheimerâ€™s disease. We are continuing work on biomarker and platform optimization to support development of a successful commercial test for Alzheimerâ€™s disease. In addition to Alzheimerâ€™s disease, we are developing a pipeline of diagnostic tests for other conditions such as non-small cell lung cancer, pancreatic cancer and tuberculosis.
Our product pipeline also includes several pharmaceutical compounds and technologies in research and development for a broad range of indications and conditions. We recently completed the acquisition of Cytochroma Inc. (â€śCytochromaâ€ť) whose lead products, both in Phase 3 development, include CTAP101 Capsules, a vitamin D prohormone to treat secondary hyperparathyroidism (â€śSHPTâ€ť) in patients with stage 3 or 4 chronic kidney disease (â€śCKDâ€ť) and vitamin D insufficiency, and Fermagate Tablets, a new and potent non-absorbed phosphate binder to treat hyperphosphatemia in end-stage renal disease (â€śESRDâ€ť) patients on chronic hemodialysis.

CTAP101 Capsules have been shown in a phase 2b clinical trial to effectively and safely treat SHPT and the underlying vitamin D insufficiency in pre-dialysis patients. Vitamin D insufficiency arises in CKD due to the abnormal upregulation of CYP24, an enzyme which destroys vitamin D and its metabolites. Studies in CKD patients have demonstrated that currently available over-the-counter and prescription vitamin D products cannot reliably raise blood vitamin D prohormone levels and effectively treat SHPT. CTAP101 Capsules are currently in phase 3 clinical trials in the U.S. If approved, we intend to market our CTAP101 Capsules together with our proprietary point-of-care vitamin D diagnostic test currently in development.
The new phosphate binder, Fermagate Tablets, has been shown to be safe and effective in treating hyperphosphatemia in phase 2 and 3 trials in CKD patients undergoing chronic hemodialysis. Hyperphosphatemia contributes to soft tissue mineralization and affects approximately 90% of dialysis patients. Dialysis patients require ongoing phosphate binder treatment to maintain normal serum phosphorus levels. We are working with U.S. and European regulatory authorities to finalize the remaining Phase 3 clinical program for Fermagate Tablets.

The CKD patient population is large and growing as a result of obesity, hypertension and diabetes, representing a potentially significant market opportunity. We intend to develop CTAP101 Capsules and Fermagate Tablets to constitute part of the foundation for a new and markedly improved standard of care for CKD patients having SHPT and/or hyperphosphatemia.

We believe that our up-regulating oligonucleotide therapeutics technology, or AntagoNAT, has the potential to create new drugs for the treatment of a wide variety of illnesses, including cancer, heart disease, metabolic disorders and a range of genetic disorders. We have a variety of therapeutic agents for respiratory disorders in clinical development, including products for asthma, chronic obstructive pulmonary disease (â€śCOPDâ€ť), and chronic cough. We are also developing a protein-based influenza vaccine designed to offer multi-season and multi-strain protection, that we believe will offer more effective and longer lasting protection against influenza, in addition to more rapid and efficient production than existing influenza vaccine technologies. In addition to these development programs, we have pharmaceutical businesses in Chile, Mexico, Israel, and Spain and recently entered the Brazilian market.

We have a highly experienced management team that we believe has demonstrated an ability to successfully build and manage pharmaceutical businesses. Our Chairman and Chief Executive Officer, Dr. Phillip Frost, founded and served as Chairman and Chief Executive Officer of IVAX Corporation (â€śIVAXâ€ť), a multi-national pharmaceutical company, from 1987 until the acquisition of IVAX by Teva Pharmaceutical Industries, Limited (â€śTevaâ€ť) in January 2006. Dr. Frost currently serves as Chairman of the Board of Teva. Prior to IVAX, Dr. Frost founded and served as Chairman of the Board of Directors of Key Pharmaceuticals, Inc. from 1972 until the acquisition of Key Pharmaceuticals by Schering Plough Corporation in 1986. Our other senior executive officers, including Dr. Jane H. Hsiao, our Vice Chairman and Chief Technology Officer and Steven Rubin, our Executive Vice President, Administration, are former executive officers of IVAX. Our Senior Vice President and Chief Financial Officer, Juan F. Rodriguez, is a former executive officer of Kos Pharmaceuticals, Inc., a publicly traded, specialty pharmaceutical company engaged in the development and commercialization of proprietary products, which was sold to Abbott Laboratories in late 2006. Based on their experience in the industry, we believe that our management team has extensive development, regulatory and commercialization expertise and relationships that provide access to commercial opportunities.

GROWTH STRATEGY

We expect our future growth to come from leveraging our proprietary technology and development strengths, and opportunistically pursuing complementary, accretive, or strategic acquisitions and investments.

We have under development a broad and diversified portfolio of diagnostic tests, vaccines and small molecules, targeting a broad range of unmet medical needs. We intend to continue to leverage our proprietary technology and our strengths in all phases of research and development to further develop and commercialize our portfolio of proprietary pharmaceutical and diagnostic products. In support of our strategy, we intend to:

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develop a focused commercialization capability in the United States; and

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expand into other medical markets which provide significant opportunities and which we believe are complementary to and synergistic with our business.

We have and expect to continue to be opportunistic and pursue complementary, or strategic acquisitions, licenses and investments. Our management team has significant experience in identifying, executing and integrating these transactions. We expect to use well-timed, carefully selected acquisitions, licenses and investments to continue to drive our growth, including:

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Commercial businesses . We intend to continue to pursue acquisitions of commercial businesses that will both drive our growth and provide geographically diverse sales and distribution opportunities, particularly outside of the United States.

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Early stage investments . We have and may continue to make investments in early stage companies that we perceive to have valuable proprietary technology and significant potential to create value for OPKO as a shareholder.

CORPORATE INFORMATION

We were originally incorporated in Delaware in October 1991 under the name Cytoclonal Pharmaceutics, Inc., which was later changed to eXegenics, Inc. (â€śeXegenicsâ€ť). On March 27, 2007, we were part of a three-way merger with Froptix Corporation (â€śFroptixâ€ť), a research and development company, and Acuity Pharmaceuticals, Inc. (â€śAcuityâ€ť), a research and development company. This transaction was accounted for as a reverse merger between Froptix and eXegenics, with the combined company then acquiring Acuity. eXegenics was previously involved in the research, creation, and development of drugs for the treatment and prevention of cancer and infectious diseases; however, eXegenics had been a public shell company without any operations since 2003. On June 8, 2007, we changed our name to OPKO Health, Inc.

Our shares are publicly traded on the NYSE under the ticker â€śOPKâ€ť. Our principal executive offices are located in leased office space in Miami, Florida. We lease office and lab space in Jupiter, Florida, and Miramar, Florida, which is where our molecular diagnostics research and development and oligonucleotide research and development operations are based, respectively. We lease office, manufacturing, and warehouse space in Woburn, Massachusetts for our point-of-care diagnostics business, and in Nesher, Israel for our API business. We lease laboratory and office space in Nashville, Tennessee and Burlingame, California for our CLIA-certified laboratory business, and we lease office space in Bannockburn, Illinois, and Markham, Ontario and laboratory space in Toronto, Ontario for our Cytochroma business. Our Chilean operations are located in leased offices and leased warehouse facilities in Santiago. Our Spanish operations are based in owned offices in Barcelona and in an owned manufacturing facility in Banyoles. Our Brazilian operation is based in a leased facility in Sao Paulo. Our Mexican operations are based in owned offices, an owned manufacturing facility, and a leased warehouse facility in Guadalajara.

We currently manage our operations in two reportable segments, pharmaceutical and diagnostics. The pharmaceutical segment consists of two operating segments, our (i) pharmaceutical research and development segment which is focused on the research and development of pharmaceutical products and vaccines, and (ii) the pharmaceutical operations we acquired in Chile, Mexico, Israel, and Spain through acquisitions in those countries. The diagnostics segment consists of two operating segments, our (i) pathology operations we acquired through the acquisition of OURLab in December 2012 and (ii) point-of-care and molecular diagnostics operations. There are no inter-segment sales. We evaluate the performance of each segment based on operating profit or loss. There is no inter-segment allocation of interest expense and income taxes.

In October 2011, we completed the sale of our ophthalmic instrumentation business to OPTOS, Inc., a subsidiary of Optos plc. Prior to the sale of the business, we had a reporting segment which consisted of ophthalmic instrumentation devices and the activities related to the research, development, manufacture, and commercialization of such products. The assets and liabilities related to our ophthalmic instrumentation business had identifiable cash flows that are independent of the cash flows of other groups of assets and liabilities and we did not have a significant continuing involvement with the related products beyond one year after the closing of the transaction. Therefore, the accompanying Consolidated Balance Sheets report the assets and liabilities related to our ophthalmic instrumentation business as discontinued operations in all periods presented, and the results of operations related to our ophthalmic instrumentation business have been classified as discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented. In connection with the classification of our ophthalmic instrumentation business as discontinued operations, we also reclassified activities related to our Aquashunt development program to our pharmaceutical research and development operating segment.

CURRENT PRODUCT CANDIDATES AND RELATED MARKETS

Diagnostics

Point-of-Care Diagnostics and LDTs

In October 2011, we acquired Claros Diagnostics, Inc. (â€śOPKO Diagnosticsâ€ť), which developed a novel diagnostic instrument system that provides rapid, high performance blood test results and enables tests to be run in point-of-care settings. The instrument, a microfluidics-based diagnostic test system consisting of a disposable test cassette that resembles a credit card and a small but sophisticated desktop analyzer, provides high performance quantitative blood test results within minutes and permits the transition of complex immunoassays and other tests from the centralized reference laboratory to the physicianâ€™s office or hospital nurses station. The technology requires only a finger stick drop of blood introduced into the cassette, which can simultaneously run, or multiplex, up to 20 separate tests.

We have already obtained a CE Mark for our point-of-care diagnostic test for PSA using this system in Europe, and we plan to launch the PSA test in Europe in the second half of 2013. We expect to submit a 510(k) to the FDA for the PSA test and begin marketing the PSA test in the U.S. in 2014. We are also presently working to add additional panels for our point-of-care system, including testosterone and vitamin D, and we believe that there are many more applications for the technology, including infectious disease, cardiology, womenâ€™s health, and companion diagnostics. If approved, we intend to market our vitamin D diagnostic test currently in development along with CTAP101 Capsules, our Phase 3 drug candidate for the treatment of SHTP and underlying vitamin D deficiency in pre-dialysis patients. We are also evaluating the ability to use the point-of-care diagnostic system to run our antibody-based tests, and expect to leverage this platform to commercialize these tests.

We are also developing our next generation 4Kscoreâ„˘ test for prostate cancer for both our point-of-care system, as well as the laboratory setting in the U.S. The OPKO 4Kscoreâ„˘ incorporates four kallikrein biomarkers (PSA, free-PSA, intact-PSA, and hK2) along with a proprietary prediction algorithm. Investigators at the University of Malmo, Sweden, University of Turku, Finland, and Memorial Sloan Kettering Cancer Center, New York, demonstrated that an algorithm integrating these biomarkers along with patient data could predict prostate biopsy results, and that the use of this algorithm to determine whether to biopsy could reduce the number of prostate biopsies performed by over fifty percent (50%). Research results indicate that these markers can predict initial biopsy results in men suspected of having prostate cancer; they have been tested in over 8,000 men and were independently validated in the European Randomized Study of Prostate Cancer Screening (Rotterdam). The value of PSA testing in men who would otherwise not be screened was assessed in the European Randomized Study of Prostate Cancer. Approximately 182,000 men in seven European countries were randomized for PSA screening or to serve as controls. At a median follow-up of approximately 9 years, PSA screening was associated with a 20% reduction in deaths from prostate cancer. Despite this finding, it is noted that 48 men would need to be treated to prevent one death from prostate cancer. Although quite specific to the prostate gland, PSA is not specific for prostate cancer. As a result, in the U.S., an estimated 750,000 men receive unnecessary prostate biopsies annually as a result of PSA testing. We believe that our novel 4Kscore â„˘ test should yield significantly greater accuracy and should provide us with a unique opportunity to greatly improve the value of prostate cancer screening.
In May 2012, we entered into a license agreement with IHT which allows IHT to market our panel of kallikrein biomarkers and associated algorithm for the detection of prostate cancer in a laboratory setting in the United Kingdom, Ireland, Sweden and Denmark; and in October 2012, IHT launched sales of lab services using this panel of biomarkers in the United Kingdom as part of IHTâ€™s ProstateCheckâ„˘ program. In December, 2012, we completed the acquisition of OURLab, a Nashville-based CLIA-certified laboratory with 18 phlebotomy sites throughout the U.S and an experienced national sales force calling primarily on urologists. In addition to continuing to operate as a full-service medical laboratory specializing in urologic pathology, OURLab provides us with a commercial platform to support the U.S. commercial launch of the 4Kscoreâ„˘ for the detection of prostate cancer as a LDT. We also believe that the OURLab structure will be helpful in speeding the development and introduction of other important tests, including antibody-based tests utilizing our unique molecular diagnostic technology.

Molecular Diagnostics

In June 2009, we acquired exclusive, worldwide rights from the University of Texas Southwestern to an innovative platform technology for the rapid identification of molecules or immunobiomarkers that may be useful in the creation of accurate, easy-to-use diagnostic tests as well as the development of vaccines and highly targeted therapeutic agents for immune system-driven diseases. The technology is based on an innovative method for the identification in small blood samples of disease-specific antibodies that can serve as diagnostic biomarkers for various diseases. We jointly own patent applications covering certain aspects of the technology and hold an exclusive license to the technology.

We believe this innovative technology could have broad applicability for the development of simple and accurate, quantitative blood tests across numerous important diseases, including a number of disease segments where there are no widely accepted or effective screening tests available. The first diagnostic product we are pursuing utilizing this technology is a simple blood test for Alzheimerâ€™s disease. The test is designed to detect elevated levels of antibodies that appear to be unique to Alzheimerâ€™s disease and could be useful in stratifying patients for ongoing clinical trials of potential Alzheimerâ€™s drugs as well as to confirm the diagnosis in a clinical setting and to track the progression of the disease or effectiveness of a therapeutic in a clinical trial. The Alzheimerâ€™s disease-specific antibodies were discovered using this novel proprietary platform that we have demonstrated in initial studies to be capable of identifying biomarkers for a wide range of diseases to which the immune system reacts, including Alzheimerâ€™s disease, as well as cancers, autoimmune diseases, neurodegenerative diseases and infectious diseases.

Currently it is estimated that over five million people in the United States, and over 35 million people worldwide, have Alzheimerâ€™s disease and the national cost of caring for people with Alzheimerâ€™s and other dementias was estimated to be $200 billion in 2012 in the United States alone. By 2050, it is estimated that approximately 13 million people in the United States over the age of 65 will have Alzheimerâ€™s, and the global prevalence of people living with Alzheimerâ€™s and other dementias is expected to be greater than 115 million. Currently there are no specific tests to detect Alzheimerâ€™s disease and follow its progression. Current diagnosis tools such as behavioral and cognitive measurements, brain scans and spinal fluid analysis have limited diagnostic accuracy, may not detect early stage disease, and in the case of spinal fluid analysis are highly invasive. Definitive diagnosis can currently be made only from examination of postmortem brain tissue samples. An effective early diagnostic blood test would provide a significant breakthrough in supporting definitive early diagnosis.

As reported in the January 2011 edition of the journal Cell , we demonstrated in a preliminary study that we were able to identify unique biomarkers from serum samples of known Alzheimerâ€™s disease patients, and then using these biomarkers we were able to distinguish patients with Alzheimerâ€™s disease from healthy controls and patients with lupus. In December 2010, we entered into a collaboration agreement with Bristol-Myers Squibb Company (â€śBMSâ€ť), under which we and BMS are investigating the utility of our novel technology for the diagnosis of Alzheimerâ€™s disease and for identifying individuals with early stage cognitive impairment that are likely to progress to Alzheimerâ€™s disease. In March 2012, we entered into a license agreement with Laboratory Corporation of America (â€śLabCorpâ€ť) for LabCorp to develop and commercialize laboratory testing services for Alzheimerâ€™s disease. We have ongoing projects for biomarker and platform optimization to support development and launch of a successful commercial test for Alzheimerâ€™s disease. In January 2013, we also expanded our collaboration with BMS to evaluate use of our technology to identify biomarkers that are predictive of drug response(s) in several other therapeutic areas. In addition to Alzheimerâ€™s disease, we are also pursuing the development of diagnostic tests for non-small cell lung cancer, pancreatic and other cancers, tuberculosis and diseases for which early detection could lead to earlier therapy and dramatically improved outcomes. We have conducted preliminary studies in neuromyelitis optica, pancreatic cancer and non-small cell lung cancer patient samples that we believe demonstrate the ability of our technology to identify biomarkers with diagnostic utility for these conditions. We plan to conduct additional studies in larger patient populations to further validate diagnostic tests for these and other conditions.

Along with molecular diagnostic applications, we believe that this same platform technology should permit the development of pharmaceutical agents or other therapeutics which can be delivered directly to the targeted autoimmune cells. Similarly, we believe that the synthetic molecules that we are able to identify through this technology could be used for the formulation of synthetic vaccines to induce an immune response that protects against foreign pathogens.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW

We are a multi-national biopharmaceutical and diagnostics company that seeks to establish industry-leading positions in large and rapidly growing medical markets by leveraging our discovery, development and commercialization expertise and our novel and proprietary technologies. We are developing a range of solutions to diagnose, treat and prevent various conditions, including molecular diagnostics tests, laboratory developed tests (â€śLTDsâ€ť), point-of-care tests and proprietary pharmaceuticals and vaccines. We plan to commercialize these solutions on a global basis in large and high growth markets, including emerging markets.

We own established pharmaceutical platforms in Spain, Chile and Mexico, which are generating revenue and from which we expect to generate positive cash flow and facilitate future market entry for our products currently in development. We also recently established pharmaceutical operations in Brazil. We operate a specialty active pharmaceutical ingredients (â€śAPIsâ€ť) manufacturer in Israel, which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products. We operate a CLIA-certified laboratory facility headquartered in Nashville, Tennessee that currently operates as a full-service medical laboratory specializing in urologic pathology, and will provide us with a platform to commercialize certain of our novel diagnostics tests currently in development. During the year ended December 31, 2012, we completed a number of strategic transactions including:

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In December 2012, we entered into an agreement with Bristol-Myers Squibb expanding our collaboration related to our molecular diagnostic test technology.

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In December 2012, we completed the acquisition of Prost-Data, Inc. (â€śOURLabâ€ť), a Nashville-based CLIA laboratory with 18 phlebotomy sites throughout the U.S.

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In October 2012, we completed the acquisition of a forty-five percent stake in SciGen (I.L.) Ltd (â€śSciGenâ€ť), an Israeli company that produces a third-generation hepatitis B vaccine in its biologics manufacturing facility in Rehovot, Israel.

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In August 2012, we acquired all of the outstanding stock of Farmadiet Group Holding, S.L. (â€śFarmadietâ€ť), a Spanish company engaged in the development, manufacture, marketing, and sale of pharmaceutical, nutraceutical, and veterinary products in Europe.

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In April 2012, we completed the acquisition of ALS Distribuidora Limitada (â€śALSâ€ť), a privately-held Chilean pharmaceutical company, pursuant to a stock purchase agreement.

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In March 2012, we announced a collaboration with Laboratory Corporation of America (â€śLabCorpâ€ť), an S&P 500 company and pioneer in commercializing new diagnostic technologies, for LabCorp to complete the development of and later commercialize laboratory testing for Alzheimerâ€™s disease.

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In February 2012, we purchased from Biozone Pharmaceuticals, Inc. (â€śBZNEâ€ť), a publicly-traded company that specializes in drug development, manufacturing, and marketing, $1.7 million of 10% secured convertible promissory notes (the â€śBZNE Notesâ€ť), and ten year warrants (the â€śBZNE Warrantsâ€ť) to purchase 8.5 million shares of BZNE common stock. In July 2012, we exercised the BZNE Warrants using their cashless net exercise feature and received 7,650,000 shares of BZNE common stock. We also entered into a license agreement pursuant to which we acquired a world-wide license for the development and commercialization of products utilizing BZNEâ€™s proprietary drug delivery technology, including a technology called QuSomes, exclusively for OPKO in the field of ophthalmology and non-exclusive for all other therapeutic fields, subject in each case to certain excluded products.

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In February 2012, we made a $1.0 million investment in ChromaDex Corporation (â€śChromaDexâ€ť), a publicly-traded company and leading provider of proprietary ingredients and products for the dietary supplement, nutraceutical, food and beverage, functional food, pharmaceutical and cosmetic markets. We also entered into a license, supply and distribution agreement with ChromaDex pursuant to which we obtained exclusive distribution rights to certain of its products in Latin America.

RECENT DEVELOPMENTS

On March 12, 2013, we completed the sale to RXi Pharmaceuticals Corporation (â€śRXiâ€ť) of substantially all of our assets in the field of RNA interference (the â€śRNAi Assetsâ€ť) (collectively, the â€śAsset Purchase Agreementâ€ť). As consideration for the RNAi Assets, at the closing of the Asset Purchase Agreement, RXi issued to us 50 million shares of its common stock (the â€śAPA Sharesâ€ť). In addition, pursuant to the Asset Purchase Agreement, RXi will be required to pay us up to $50 million in milestone payments upon the successful development and commercialization of each drug developed by RXi, certain of its affiliates or any of its or their licensees or sublicensees utilizing patents included within the RNAi Assets (each, a â€śQualified Drugâ€ť). In addition, RXi will be required to pay us royalties equal to: (a) a mid single-digit percentage of â€śNet Salesâ€ť (as defined in the Asset Purchase Agreement) with respect to each Qualified Drug sold for an ophthalmologic use during the applicable â€śRoyalty Periodâ€ť (as defined in the Asset Purchase Agreement); and (b) a low single-digit percentage of net sales with respect to each Qualified Drug sold for a non-ophthalmologic use during the applicable royalty period.

On March 4, 2013, we acquired Cytochroma Inc., a corporation located in Markham, Canada (â€śCytochromaâ€ť), whose lead products, both in Phase 3 development, are CTAP101 Capsules, a vitamin D prohormone to treat secondary hyperparathyroidism (â€śSHPTâ€ť) in patients with stage 3 or 4 chronic kidney disease (â€śCKDâ€ť) and vitamin D insufficiency, and Fermagate Tablets, a non-absorbed phosphate binder to treat hyperphosphatemia in dialysis patients (the â€śCytochroma Acquisitionâ€ť).

In connection with the Cytochroma Acquisition, OPKO IP Holdings, Inc., our indirect wholly-owned subsidiary paid $100.0 million in shares of our Common Stock, par value $0.01 per share, based on the volume-weighted average price per share of our Common Stock as reported on the NYSE for the ten trading days immediately preceding the date of the purchase agreement for the Cytochroma Acquisition, or $4.87 per share (the â€śStock Considerationâ€ť). In connection with the Cytochroma Acquisition, we issued 20,517,030 shares of our Common Stock at the closing. The Cytochroma Agreement contains customary representations, warranties, conditions to closing, indemnification rights and obligations of the parties.

In addition, the Cytochroma Acquisition requires payments of up to an additional $190.0 million in cash or additional shares of our Common Stock, at our election, upon the achievement of certain milestones relating to development and annual revenue.

On March 1, 2013, our Board of Directors declared a cash dividend to all Series D Preferred stockholders as of March 8, 2013. The total cash dividend paid was approximately $3.0 million. In addition, the Company also exercised its option to convert all 1,129,032 shares of our outstanding Series D Preferred Stock into 11,290,320 shares of our Common Stock effective of March 8, 2013. Following the conversion there are no outstanding shares of Series D Preferred Stock.

On January 29, 2013, we entered into note purchase agreements, dated January 25, 2013, with various purchasers (collectively, the â€śPurchasersâ€ť) for the sale of $175.0 million aggregate principal amount of 3.00% convertible senior notes due 2033 (the â€śNotesâ€ť) to qualified institutional buyers and accredited investors (collectively, the â€śNote Purchase Agreementâ€ť) in a private placement in reliance on exemptions from registration under the Securities Act of 1933 (the â€śSecurities Actâ€ť). The Purchasers of the Notes include Frost Gamma Investments Trust, a trust affiliated with Dr. Phillip Frost, our Chairman and Chief Executive Officer, and Hsu Gamma Investment, L.P., an entity affiliated with Dr. Jane H. Hsiao, our Vice Chairman and Chief Technology Officer. The Notes were issued on January 30, 2013.

RESULTS OF OPERATIONS

For The Years Ended December 31, 2012 and December 31, 2011

Revenues . Revenues for the year ended December 31, 2012 increased approximately 68% to $47.0 million from $28.0 million for the year ended December 31, 2011. The increase in revenues for the year ended December 31, 2012 was primarily due to $7.1 million of revenue generated by FineTech, which we acquired in December 2011, $6.1 million of revenue generated by Farmadiet, which we acquired in August 2012, an increase of $5.0 million of revenue generated in Chile primarily related to our acquisition of ALS in April 2012 and $0.6 million of revenue generated by SciGen, a consolidated variable interest entity in which we have a forty-five percent stake.

Gross margin . Gross margin for the year ended December 31, 2012 was $19.2 million compared to $10.7 million for the year ended December 31, 2011. Gross margin for the year ended December 31, 2012 increased from the comparable period of 2011 primarily as a result of $3.4 million of gross margin generated by Farmadiet and $5.4 million of gross margin generated by FineTech. The gross margin increase was partially offset by decreased gross margins in our Chilean and Mexican operations primarily as a result of product pricing pressures experienced in those markets.

Selling, general and administrative expenses . Selling, general and administrative expenses for the year ended December 31, 2012 were $27.8 million, compared to $19.2 million for the year ended December 31, 2011. Selling, general and administrative expenses increased primarily as a result of the 2012 full year impact of expenses, of $0.8 million, related to Claros Diagnostics Inc. (â€śOPKO Diagnosticsâ€ť) and FineTech, which were acquired in October and December 2011, respectively, and $5.0 million of expenses related to ALS, Farmadiet, SciGen and OURLab, which were acquired in 2012. Selling, general and administrative expenses consist primarily of personnel expenses, including equity-based compensation of $3.1 million and $3.0 million for the years ended December 31, 2012 and 2011, respectively.

Research and development expenses . Research and development expenses for the year ended December 31, 2012 were $19.5 million, compared to $11.4 million for the year ended December 31, 2011. Research and development expenses for the year ended December 31, 2012 increased primarily due to the 2012 activities related to our molecular diagnostics development programs and for OPKO Diagnostics, of $6.1 million, which we acquired in October 2011. This increase was partially offset by lower equity based compensation expense due to decreased mark to market adjustments for certain of our consultant stock option awards. Equity based compensation expenses included in research and development expenses were $2.0 million and $4.0 million, respectively, for the years ended December 31, 2012 and 2011. During the year ended December 31, 2012, we received $0.3 million in NASA development grants. During the year ended December 31, 2011 we received $0.7 million of grants under the New Qualifying Therapeutic Discovery Project Credit (or Grant) program for expenditures related to certain development programs. In addition, during the years ended December 31, 2012 and 2011, we received $0.2 million and $0.6 million of research and development grants for development programs in Mexico. These grants were recorded as an offset to research and development expenses.

Contingent consideration . Contingent consideration expenses, which represented the change in the fair value of the contingent consideration liabilities due to the time value of money and changes in the timeline of the development milestones being achieved, were $0.8 million for the year ended December 31, 2012, Contingent consideration liabilities relates to potential amounts payable to former stockholders of Farmadiet, FineTech, OPKO Diagnostics, and CURNA, Inc. pursuant to our acquisition agreements in August 2012, December 2011, October 2011, and January 2011, respectively. The comparable period of 2011 did not include any such expenses.

Amortization of intangible assets . Amortization of intangible assets was $8.3 million for the year ended December 31, 2012, compared to $3.4 million for the year ended December 31, 2011. Amortization expenses increased primarily due to the acquisitions of Farmadiet, ALS, FineTech, and OPKO Diagnostics in August 2012, April 2012, December 2011, and October 2011, respectively.

Other income and (expense), net . Other income, net was $56 thousand for the year ended December 31, 2012, compared to other expense, net of $1.0 million for the year ended December 31, 2011. For the year ended December 31, 2012, other income, net included $1.5 million of other income recognized for the change in fair value of the warrants received in connection with our investment in BZNE, partially offset by other expense recognized for the decrease in fair value of the warrants received in connections with our investment in Neovasc Inc. (â€śNeovascâ€ť). Other income and (expense), net also included our interest incurred on our lines of credit in Chile and Spain, our interest expense related to the discount amortization of the Deferred Payments in Spain, partially offset by interest earned on our cash and cash equivalents and the benefits from our Chilean and Mexico operations functional currencies strengthening during the year ended December 31, 2012. For the year ended December 31, 2011, other expense, net consisted of our interest incurred on our lines of credit in Chile and foreign currency expense, partially offset by interest earned on our cash and cash equivalents.

Loss from investment in investees . We have made investments in other early stage companies that we perceive to have valuable proprietary technology and significant potential to create value for us as a shareholder. We account for five of these investments under the equity method of accounting, resulting in our recording of our proportionate share of their losses until our share of their loss exceeds our investment. Until the investeeâ€™s technologies are commercialized, if ever, we anticipate they will continue to report a net loss. During the year ended December 31, 2012, the losses from our strategic investments increased to $2.1 million from $1.6 million in 2011 as the result of increased losses at our investees. As of December 31, 2012, we have $15.6 million, net, of strategic investments recorded on our Consolidated Balance Sheets.

Discontinued operations . Income from discontinued operations was $0.1 million for the year ended December 31, 2012 compared to $5.2 million for the year ended December 31, 2011. The income for the year ended December 31, 2012 reflected the recovery of certain retained accounts receivable from our ophthalmic instrumentation business following the October 2011 sale of such business to Optos, Inc., a subsidiary of Optos plc (collectively, â€śOptosâ€ť). The income from discontinued operations for the year ended December 31, 2011 reflected a gain of $10.6 million recorded in connection with the sale of our ophthalmic instrumentation business, which included the cash consideration received less the net assets transferred to Optos.

Income taxes . Our income tax benefit from continuing operations for the year ended December 31, 2012 was 9.6 million, compared to $19.4 million for the year ended December 31, 2011. The decrease in income tax benefit for the 2012 period is primarily the result of lower values assigned to the amortizing intangible assets related to the acquisition of OURLab compared to the OPKO Diagnostics acquisition in 2011. We have recorded a full valuation allowance against our net deferred tax assets in the U.S. for the years ended December 31, 2012 and 2011.

For The Years Ended December 31, 2011 and December 31, 2010

Revenues . Revenues for the year ended December 31, 2011 were $28.0 million, compared to $28.5 million for the year ended December 31, 2010. Revenues from our pharmaceutical products increased during 2011 compared to 2010, primarily related to an increase in revenues of $6.1 million in our pharmaceutical business in Chile and Mexico as the number of customers in each country increased. This increase was offset by a decrease in license revenue. In December 2010, we out-licensed our NK-1 development program to TESARO, Inc. (â€śTESAROâ€ť) for an upfront cash payment of $6.0 million, future milestone payments of up to $115.0 million, 1.5 million shares of TESARO Series O Preferred Stock (â€śTESARO Preferred Stockâ€ť) and royalty payments on future sales. We recorded the TESARO Preferred Stock at fair value and recognized $6.7 million as license revenue, including $6.0 million in cash for the year ending December 31, 2010.
Gross margin . Gross margin for the year ended December 31, 2011 was $10.7 million, compared to $15.0 million for the year ended December 31, 2010. Gross margin decreased during 2011 from gross margin in 2010. During the year ended December 31, 2010, license revenue included $6.7 million related to TESARO, with no associated cost of revenues. The decrease in gross margin was partially offset by increased gross margin generated by our pharmaceutical business through our operations in Chile and Mexico.

Selling, general and administrative expenses . Selling, general and administrative expenses for the year ended December 31, 2011 were $19.2 million, compared to $18.1 million for the year ended December 31, 2010. Selling, general and administrative expenses increased primarily as a result of expenses related to our pharmaceutical businesses in Chile and Mexico. This increase was partially offset by decreased equity based compensation expense reflecting $3.0 million and $4.8 million of equity based compensation expense for the years ended December 31, 2011 and 2010, respectively.

Research and development expenses . Research and development expenses for the year ended December 31, 2011 were $11.4 million, compared to $5.9 million for the year ended December 31, 2010. Research and development expenses increased during 2011 primarily as a result of personnel costs, including equity based compensation, to support increased activities for our molecular diagnostic programs and development activities related to our CURNA, Inc. and our point-of-care technology acquired from OPKO Diagnostics. Research and development expenses during the year December 31, 2010 included activities related to our rolapitant development program prior to its licensure to TESARO. Included in research and development expense were $4.0 million and $1.7 million of equity based compensation expense for the years ended December 31, 2011 and 2010, respectively. During 2011, we received $1.3 million in research and development grants from the Mexican government and under the New Qualifying Therapeutic Discovery Project Credit in the U.S. During 2010, we received $0.3 million in research and development grants from the Mexican government. These grants were recorded as an offset to research and development expenses during both years.
Amortization of intangible assets . Amortization of intangible assets was $3.4 million for the year ended December 31, 2011, compared to $2.1 million for the year ended December 31, 2010. Amortization expense increased primarily due to our acquisitions of CURNA, OPKO Diagnostics, and FineTech.

Other income and (expense), net . Other expense net was $1.0 million for the year ended December 31, 2011, compared to $0.8 million for the year ended December 31, 2010. Other income and (expense), net primarily consisted of interest expense on our Chilean lines of credit and foreign currency expense for the year ended December 31, 2011, partially offset by interest earned on our cash and cash equivalents. For the year ended December 31, 2010, other expense, net primarily reflected the interest incurred on our line of credit with The Frost Group LLC (the â€śFrost Groupâ€ť) as well as interest expense incurred on our Chilean lines of credit. In June 2010, we repaid all amounts outstanding on the Frost Group line of credit including $12.0 million in principal and $4.1 million in interest. The Frost Group members include a trust controlled by Dr. Frost, who is the Companyâ€™s Chief Executive Officer and Chairman of the Board of Directors, Dr. Jane H. Hsiao, who is the Vice Chairman of the Board of Directors and Chief Technical Officer and Steven D. Rubin who is Executive Vice President â€“ Administration and a director of the Company.

Loss from investment in investees . We have made investments in other early stage companies that we perceive to have valuable proprietary technology and significant potential to create value for us as a shareholder. In connection with our investments, we account for these investments under the equity method of accounting, resulting in our recording of our proportionate share of their losses until our share of their loss exceeds our investment. Until the investeeâ€™s technologies are commercialized, if ever, we anticipate they will continue to report a net loss. During the year ended December 31, 2011 the losses from our strategic investments increased to $1.6 million from $0.7 million. This increase is principally the result of increased losses at our investees. In addition to our losses from Sorrento and Cocrystal, we invested in Neovasc during 2011, and a full year of losses from Fabrus, which we invested in November 2010. As of December 31, 2011 we have $6.7 million, net, of strategic investments recorded on our balance sheet.

Discontinued operations . Income from discontinued operations was $5.2 million for the year ended December 31, 2011 compared to a loss of $6.3 million for the year ended December 31, 2010. In September 2011, we entered into an agreement with Optos to sell our ophthalmic instrumentation business. Upon closing in October 2011, we received $17.5 million of cash and are eligible to receive royalties up to $22.5 million on future sales. In connection with the sale, we recorded a gain of $10.6 million reflecting the cash consideration received less the net assets transferred to Optos. The loss incurred during the year ended December 31, 2010 primarily reflected the operating results of our ophthalmic instrumentation business.

Income taxes . Our income tax benefit from continuing operations for the year ended December 31, 2011 was $19.4 million, compared to $18 thousand for the year ended December 31, 2010. The increase in income tax benefit for the year ended December 31, 2011 period was primarily the result of recording a deferred tax liability related to the amortizing intangible assets acquired as part of the OPKO Diagnostics transaction. In connection with the recognition of the deferred tax liability, we reduced the amount of valuation allowance recorded against our deferred tax assets for the year ended December 31, 2011.

CEO BACKGROUND

Nominees for Election of Directors

Pursuant to the authority granted to our Board of Directors under Article III of our Amended and Restated Bylaws, the Board has fixed the number of directors constituting the entire Board at ten. All ten directors are to be elected at the Annual Meeting, each to hold office until the 2013 annual meeting of stockholders and until his successor is duly elected and qualified. Each stockholder of record on April 16, 2012 is entitled to cast one vote for each share of our common stock and each stockholder of record on April 16, 2012 of our Series D Preferred Stock is entitled to vote on an as converted to common stock basis, either in favor of or against the election of each nominee, or to abstain from voting on any or all nominees. As of April 16, 2012, each share of our Series D Preferred Stock is convertible into approximately ten shares of common stock. All shares of our common stock and Series D Preferred Stock vote together as a single class. Although management does not anticipate that any nominee will be unable or unwilling to serve as director, in the event of such an occurrence, proxies may be voted in the discretion of the persons named in the proxy for a substitute designated by the Board, unless the Board decides to reduce the number of directors constituting the Board. Each nominee shall be elected if the votes cast in favor of a nominee by the holders of shares of our common stock and Series D Preferred Stock present or represented and entitled to vote at the Annual Meeting at which a quorum is present exceed the votes cast against a nominee.

Phillip Frost, M.D. Dr. Frost became the CEO and Chairman of OPKO Health, Inc. upon the consummation of the merger of Acuity Pharmaceuticals Inc., Froptix Corporation and eXegenics, Inc. on March 27, 2007. Dr. Frost was named the Chairman of the Board of Teva Pharmaceutical Industries, Limited, or Teva, (NYSE:TEVA) in March 2010 and had previously been Vice Chairman since January 2006 when Teva acquired IVAX Corporation, or IVAX. Dr. Frost had served as Chairman of the Board of Directors and Chief Executive Officer of IVAX Corporation since 1987. He was Chairman of the Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami Beach, Florida from 1972 to 1986. Dr. Frost was Chairman of the Board of Directors of Key Pharmaceuticals, Inc. from 1972 until the acquisition of Key Pharmaceuticals by Schering Plough Corporation in 1986. Dr. Frost was named Chairman of the Board of Ladenburg Thalmann Financial Services Inc. (NYSE Amex:LTS), an investment banking, asset management, and securities brokerage firm providing services through its principal operating subsidiary, Ladenburg Thalmann & Co. Inc., in July 2006 and has been a director of Ladenburg Thalmann from 2001 until 2002 and again since 2004. Dr. Frost also serves as Chairman of the board of directors of PROLOR Biotech, Inc. (NYSE Amex: PBTH), a development stage biopharmaceutical company. He serves as a member of the Board of Trustees of the University of Miami and as a Trustee of each of the Scripps Research Institute, the Miami Jewish Home for the Aged, and the Mount Sinai Medical Center. Dr. Frost is also a director of Castle Brands (NYSE Amex:ROX), a developer and marketer of premium brand spirits. Dr. Frost previously served as a director for Continucare Corporation, Northrop Grumman Corp., Ideation Acquisition Corp., Protalix Bio Therapeutics, Inc., and SafeStitch Medical Inc., and as Governor and Co-Vice-Chairman of the American Stock Exchange (now NYSE Amex).

Dr. Frost has successfully founded several pharmaceutical companies and overseen the development and commercialization of a multitude of pharmaceutical products. This combined with his experience as a physician and chairman and/or chief executive officer of large pharmaceutical companies has given him insight into virtually every facet of the pharmaceutical business and drug development and commercialization process. He is a demonstrated leader with keen business understanding and is uniquely positioned to help guide our Company through its transition from a development stage company into a successful, multinational biopharmaceutical and diagnostics company.

Jane H. Hsiao, Ph.D., MBA. Dr. Hsiao has served as Vice-Chairman and Chief Technical Officer of the Company since May 2007. Dr. Hsiao served as the Vice Chairman-Technical Affairs of IVAX from 1995 to January 2006. Dr. Hsiao served as Chairman, Chief Executive Officer and President of IVAX Animal Health, IVAXâ€™s veterinary products subsidiary, from 1998 to 2006. Dr. Hsiao has served as Chairman of the Board of each of Safestitch Medical, Inc. (OTCQB:SFES) and Non-Invasive Monitoring Systems, Inc. (OTCBB:NIMU), both medical device companies, since September 2007 and October 2008, respectively, and was named Interim Chief Executive Officer of Non-Invasive Monitoring Systems, Inc. in February 2012. Dr. Hsiao is also a director of PROLOR Biotech, Inc. (NYSE Amex: PBTH), a development stage biopharmaceutical company, Sorrento Therapeutics, Inc. (OTCBB:SRNE), a development stage biopharmaceutical company, and Neovasc, Inc. (TSXV:NVC), a company developing and marketing medical specialty vascular devices. Dr. Hsiao previously served as a director for Protalix BioTherapeutics, Inc.

Dr. Hsiaoâ€™s background in pharmaceutical chemistry and strong technical expertise, as well as her senior management experience, allow her to play an integral role in overseeing our product development and regulatory affairs and in navigating the regulatory pathways for our products and product candidates. In addition, as a result of her role as director and/or chairman of other companies in the biotechnology and life sciences space, she also has a keen understanding and appreciation of the many regulatory and development issues confronting pharmaceutical and biotechnology companies.
Steven D. Rubin. Mr. Rubin has served as Executive Vice President - Administration since May 2007 and as a director of the Company since February 2007. Mr. Rubin served as the Senior Vice President, General Counsel and Secretary of IVAX from August 2001 until September 2006. Mr. Rubin currently serves on the board of directors of Dreams, Inc. (NYSE Amex:DRJ), a vertically integrated sports licensing and products company, Safestitch Medical, Inc. (OTCQB:SFES), a medical device company, Searchmedia Holdings, Ltd, (NYSEAmex:IDI), a leading nationwide multi-platform media company and one of the largest operators of integrated outdoor billboard and in-elevator advertising networks in China, PROLOR Biotech, Inc. (NYSE Amex: PBTH), a development stage biopharmaceutical company, Kidville, Inc. (OTCBB:KVIL), which operates large, upscale facilities, catering to newborns through five-year-old children and their families and offers a wide range of developmental classes for newborns to 5 year olds, Non-Invasive Monitoring Systems, Inc. (OTCBB:NIMU), a medical device company, Tiger X Medical, Inc. (OTCBB:CDOM), previously an early-stage orthopedic medical device company specializing in designing, developing and marketing reconstructive joint devices and spinal surgical devices, Castle Brands, Inc. (NYSE Amex:ROX), a developer and marketer of premium brand spirits, and Neovasc, Inc. (TSXV:NVC), a company developing and marketing medical specialty vascular devices.

Mr. Rubin brings extensive leadership, business, and legal experience, as well as tremendous knowledge of our business and the pharmaceutical industry generally, to the Board. He has advised pharmaceutical companies in several aspects of business, regulatory, transactional, and legal affairs for more than 23 years. His experience as a practicing lawyer, general counsel, and board member to multiple public companies, including several pharmaceutical and life sciences companies, has given him broad understanding and expertise, particularly relating to strategic planning and acquisitions.

Robert A. Baron. Mr. Baron has served as a director of the Company since 2003. Mr. Baron is currently a director of Andover Medical, Inc. (Pink Sheets:ADOV.PK), a durable medical equipment distributor. Prior to that he was president of Cash City, Inc., a payday advance and check cashing business, from 1999 to 2003. From 1997 to 1999, Mr. Baron was the president of East coast operations for CSS/TSC, Inc., a distributor of blank t-shirts, fleece and accessories and a subsidiary of Tultex, Inc. Mr. Baron previously served as a director of Hemobiotech, Inc. and Nanosensors, Inc.

Mr. Baronâ€™s history as an operating executive in a variety of industries combined with his experience as a director in other public companies, including other pharmaceutical and medical equipment manufacturers, allows him to bring strategic insight to the Board with respect to our business as well as emerging technologies and business models. Through these experiences, Mr. Baron has also developed an appreciation for audit and corporate governance related issues and, he uses these skills as a member of the Audit Committee and Corporate Governance and Nominating Committee of our Board of Directors.
Thomas E. Beier. Mr. Beier has served as a director of the Company since January 2008. Previously, he was Senior Vice President of Finance and Chief Financial Officer of IVAX from October 1997 until August 2007, and from December 1996 until October 1997, he served as Vice President-Finance for IVAX. Before joining IVAX, Mr. Beier served as Executive Vice President and Chief Financial Officer of Intercontinental Bank. Mr. Beier previously served as a director of Ideation Acquisition Corp.

As a result of Mr. Beierâ€™s long tenure as a chief financial officer, he brings with him a strong financial and operational background and provides valuable business leadership and management experience and insights into many aspects of our business. Mr. Beier also brings financial expertise to the Board.
Richard A. Lerner, M.D. Dr. Lerner has served as a director of the Company since March 2007. Dr. Lerner served as President of The Scripps Research Institute, a private, non-profit biomedical research organization, from 1986 until 2011 and is currently serving as an institute professor. Dr. Lerner is a member of numerous scientific associations, including the National Academy of Science and the Royal Swedish Academy of Sciences. Dr. Lerner serves as director of Kraft Foods, Inc. (NYSE:KFT) and Sequenom, Inc. (Nasdaq:SQNM), a life sciences company. He is also on the board of directors for Intra-Cellular Therapies, a privately held biotechnology company. He previously served as a director of Xencor, a privately held biotechnology company, and on the Siemensâ€™ Advisory Board for Molecular Medicine of Siemens AG.

As a result of Dr. Lernerâ€™s long tenure as president of a major biomedical research organization, he provides valuable business, scientific, leadership, and management expertise that helps drive strategic direction and expansion at OPKO. His experience and training as a physician and a scientist enables him to bring valuable advice to the Board, including a critical perspective on drug discovery and development and providing a fundamental understanding of the potential pathways contributing to disease.

Dmitry Kolosov . Mr. Kolosov has been nominated to serve as a director of the Company commencing at the 2012 Annual Meeting of Stockholders. Mr. Kolosov, an attorney, presently serves as the Vice President, Chief of Staff, and Member of the Management Board of the Skolkovo Foundation, a nonprofit organization in Russia charged by Russian President Dmitry Medvedev with creating a new science and technology city in the Moscow suburb of Skolkovo, which comprises a university, research institutions, centers of collective usage, business incubator, technology transfer and commercialization office, corporate offices and research and development centers, as well as residential space and social infrastructure. From 2002 until 2010 when he joined the Skolkovo Foundation, Mr. Kolosov served in various positions, including as Executive Secretary of the Board of Directors and Head of Shareholder Relations, and as Advisor to the Executive Chairman of the Board, of TNK-BP, a joint venture between BP plc and the Alfa-Access-Renova consortium, and among the ten largest private oil companies in the world.

Through his tenure with a large multi-national corporation and the Skolkovo Foundation, Mr. Kolosov has significant experience with international business and cross-border transactions, particularly in emerging markets, that will assist the Company as it expands internationally.

John A. Paganelli. Mr. Paganelli has served as a director of the Company since December 2003. Mr. Paganelli served as the Companyâ€™s Interim Chief Executive Officer and secretary from June 29, 2005 through March 27, 2007, and Chairman of our Board of Directors from December 2003 through March 27, 2007. Mr. Paganelli served as President and Chief Executive Officer of Transamerica Life Insurance Company of New York from 1992 to 1997. Since 1987, Mr. Paganelli has been a partner in RFG Associates, a financial planning organization. Mr. Paganelli is also the Managing Partner of Pharos Systems Partners, LLC, an investment company, and he is Chairman of the Board of Pharos Systems International, a software company. He was Vice President and Executive Vice President of PEG Capital Management, an investment advisory organization, from 1987 until 2000. From 1980 to January 2003, Mr. Paganelli was an officer and director-stockholder of Mike Barnard Chevrolet, Inc., an automobile dealership. Mr. Paganelli also serves as a director of Western New York Energy, LLC and is on the Board of Trustees of Paul Smithâ€™s College. Mr. Paganelli previously served on the Board of Managers of Bridge Financial Services, LLC.

With his significant experience in investment management and operations, Mr. Paganelli is able to add valuable expertise and insight to our board on a wide range of operational and financial issues. As one of the longest tenured members of our board, he also has substantial knowledge and familiarity regarding our historical operations.

Richard C. Pfenniger, Jr. Mr. Pfenniger has served as a director of the Company since January 2008. Mr. Pfenniger served as Chief Executive Officer and President for Continucare Corporation (NYSE:CNU), a provider of primary care physician and practice management services, from October 2003 until October 2011, and served as Chairman of the Board of Directors of Continucare from September 2002 until October 2011. Previously, Mr. Pfenniger served as the Chief Executive Officer and Vice Chairman of Whitman Education Group, Inc. from 1997 through June 2003. Prior to joining Whitman, he served as the Chief Operating Officer of IVAX from 1994 to 1997, and, from 1989 to 1994, he served as the Senior Vice President-Legal Affairs and General Counsel of IVAX Corporation. Mr. Pfenniger currently serves as a director of GP Strategies Corporation (NYSE:GPX), a corporate education and training company, and SafeStitch Medical, Inc. (OTCQB:SFES), a medical device company.

As a result of Mr. Pfennigerâ€™s multi-faceted experience as chief executive officer, chief operating officer and general counsel, he is able to provide valuable business, leadership, and management advice to the Board in many critical areas. In addition, Mr. Pfenningerâ€™s knowledge of the pharmaceutical and healthcare business has given him insights on many aspects of our business and the markets in which we operate. Mr. Pfenniger also brings financial expertise to the Board, including through his service as Chairman of our Audit Committee.

Alice Lin-Tsing Yu, M.D., Ph.D. Dr. Yu was appointed to the Companyâ€™s Board of Directors in April 2009. Since 2003, Dr. Yu has served as Distinguished Research Fellow and Associate Director at the Genomics Research Center, Academia Sinica, in Taiwan. She has also served as a Professor of Pediatrics for both the National Taiwan University and University of California in San Diego, since 2004 and 1994, respectively. Previously, she was the Chief of Pediatric Hematology Oncology at the University of California in San Diego. Dr. Yu has also served in several government-appointed positions and is a member of numerous scientific committees and associations.

Dr. Yu is an accomplished physician, professor, and researcher who brings a unique perspective to our Board on a variety of healthcare related issues. We expect the insight and experience gained from her distinguished record of achievement at several highly respected academic medical institutions, as well as her experience as a practicing physician, will be valuable to our efforts to develop and commercialize our pipeline of diagnostic and therapeutic products.

OUR BOARD RECOMMENDS A VOTE â€śFORâ€ť THE ELECTION OF ALL NOMINEES NAMED ABOVE.

Identification of Executive Officers

Rao Uppaluri, Ph.D. Dr. Uppaluri has served as our Senior Vice President and Chief Financial Officer since May 2007. Dr. Uppaluri served as the Vice President, Strategic Planning and Treasurer of IVAX from 1997 until December 2006. Before joining IVAX, from 1987 to August 1996, Dr. Uppaluri was Senior Vice President, Senior Financial Officer and Chief Investment Officer with Intercontinental Bank, a publicly traded commercial bank in Florida. In addition, he served in various positions, including Senior Vice President, Chief Investment Officer and Controller, at Peninsula Federal Savings & Loan Association, a publicly traded Florida S&L, from October 1983 to 1987. His prior employment, during 1974 to 1983, included engineering, marketing and research positions with multinational companies and research institutes in India and the United States. Dr. Uppaluri currently serves on the board of directors of Kidville, Inc (OTCBB:KVIL), which operates large, upscale facilities, catering to newborns through five-year-old children and their families and offers a wide range of developmental classes for newborns to 5 year olds, Tiger X Medical, Inc. (OTCBB:CDOM), previously an early-stage orthopedic medical device company specializing in designing, developing and marketing reconstructive joint devices and spinal surgical devices, and Non-Invasive Monitoring Systems, Inc. (OTCBB:NIMU), a medical devices company. Dr. Uppaluri previously served on the board of directors of our company, Ideation Acquisition Corp., and Winston Pharmaceuticals Inc.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

OVERVIEW

We are a multi-national biopharmaceutical and diagnostics company that seeks to establish industry-leading positions in large and rapidly growing medical markets by leveraging our discovery, development and commercialization expertise and our novel and proprietary technologies. We are developing a range of solutions to diagnose, treat and prevent various conditions, including molecular diagnostics tests, laboratory developed tests (â€śLDTsâ€ť), point-of-care tests and proprietary pharmaceuticals and vaccines. We plan to commercialize these solutions on a global basis in large and high growth markets, including emerging markets.

RECENT DEVELOPMENTS

On August 29, 2013, we acquired PROLOR Biotech, Inc. ("PROLOR") pursuant to an Agreement and Plan of Merger dated April 23, 2013 (the "PROLOR Merger Agreement") in an all-stock transaction. PROLOR is an Israeli-based biopharmaceutical company focused on developing and commercializing longer-acting proprietary versions of already approved therapeutic proteins.

Under the terms of the PROLOR Merger Agreement, holders of PROLOR common stock received 0.9951 shares of our Common Stock for each share of PROLOR common stock. At closing we delivered 63,670,805 shares of our Common Stock valued at $540.6 million based on the closing price per share of our Common Stock as reported by the NYSE on the closing date of the acquisition, or $8.49 per share. Until completion of the acquisition, Dr. Phillip Frost, our Chairman and Chief Executive Officer, was PROLORâ€™s Chairman of the Board and a greater than 5% stockholder of PROLOR. Dr. Jane H. Hsiao, our Vice Chairman and Chief Technology Officer and Mr. Steven Rubin, our Executive Vice President, Administration, were both directors of PROLOR and less than 5% stockholders of PROLOR.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

Revenues. Revenues for the three months ended September 30, 2013 , were $20.6 million , compared to $11.8 million for the 2012 period. This increase principally reflected revenues related to the post September 30, 2012, acquisitions of Prost-Data, Inc. (â€śOURLabâ€ť), and SciVac Ltd ("SciVac"), previously known as SciGen (I.L.) Ltd, and the acquisition of Farmadiet Group Holding, S.L. (â€śFarmadietâ€ť) in August 2012, which contributed $2.6 million, $0.3 million and $2.0 million of revenues, respectively, during the three months ended September 30, 2013 . Revenue from our Chilean operations increased $1.2 million during the three months ended September 30, 2013 , primarily due to increased sales to government agencies. Revenue from our Israeli API business increased $1.2 million during the three months ended September 30, 2013 , primarily related to increased sales from existing customers. Revenue from our Mexican operations increased by $0.3 million during the three months ended September 30, 2013 , primarily due to a shift in marketing strategy to focus sales efforts to private institutions. Revenue related to our molecular diagnostics collaboration agreements and license agreements increased $1.2 million during the three months ended September 30, 2013 , compared to the 2012 period, primarily related to revenue recorded in connection to the OAO Pharmsynthez (â€śPharmsynthezâ€ť) collaboration agreements.

We own established pharmaceutical platforms in Spain, Chile and Mexico, which are generating revenue and from which we expect to generate positive cash flow and facilitate future market entry for our products currently in development. We also recently established pharmaceutical operations in Brazil. We operate a specialty active pharmaceutical ingredients (â€śAPIsâ€ť) manufacturer in Israel, which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products. We operate a full-service medical laboratory specializing in urologic pathology with CLIA-certified laboratory facilities, that will provide us with a platform to commercialize certain of our novel diagnostics tests currently in development.

Costs of revenue. Costs of revenue for the three months ended September 30, 2013 , were $12.0 million , compared to $7.5 million for the 2012 period. Costs of revenue for the three months ended September 30, 2013 , increased principally due to costs of revenue recorded by OURLab, SciVac and Farmadiet of $2.5 million, $1.0 million and $0.6 million, respectively, which businesses were acquired post September 30, 2012, with the exception of Farmadiet, which business was acquired in August 2012. Costs of revenue from our Chilean and Mexican operations increased $0.3 million and $0.1 million, respectively, during the three months ended September 30, 2013 , primarily related to a higher level of revenues in these businesses.

Research and development expenses . Research and development expenses for the three months ended September 30, 2013 and 2012, were $11.1 million and $3.6 million , respectively. Research and development costs include external and internal expenses, partially offset by third-party grants and fundings arising from collaboration agreements. External expenses include clinical and non-clinical activities performed by contract research organizations, lab services, purchases of drug and diagnostic product materials and manufacturing development costs. We track external research and development expenses by individual program, for Phase 3 clinical trials for drug approval and/or premarket approvals for diagnostics tests (â€śPMAâ€ť), if any. Research and development employee-related expenses include salaries, benefits and stock-based compensation expense. Other unallocated internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities.

The increase in research and development expenses during the three months ended September 30, 2013 , as compared to the 2012 period, principally resulted from an increase of $7.7 million related to the Cytochroma and PROLOR development programs, including $3.9 million related to the cost of ongoing Phase 3 clinical trials for Rayaldy TM and for hGH-CTP. During the three months ended September 30, 2013 and 2012, we recorded, as an offset to research and development expenses, $0.8 million and $0.2 million, respectively, related to research and development grants received and from our collaboration and funding agreements. Research and development expenses for the three months ended September 30, 2013 includes an offset to research and development expenses of $2.7 million related to the correction of an error related to equity awards granted to non-employees with performance based vesting, partially offset by $0.9 million of expense. Research and development expense for the three months ended September 30, 2012 included $15 thousand of equity-based compensation expense.

Contingent consideration. Contingent consideration expenses for the three months ended September 30, 2013 and 2012, were $0.3 million and $0.6 million , respectively. The decrease in contingent consideration expense resulted from changes in the fair value of the contingent consideration liabilities due to the time value of money and the impact of changes in the underlying assumptions, if any, during the period. The contingent consideration liabilities relate to potential amounts payable to former stockholders of CURNA, Inc. ("CURNA"), Claros Diagnostics Inc. (â€śOPKO Diagnosticsâ€ť), FineTech Pharmaceuticals, Ltd. ("FineTech"), Farmadiet and Cytochroma pursuant to our acquisition agreements in January 2011, October 2011, December 2011, August 2012 and March 2013, respectively.

Amortization of intangible assets. Amortization of intangible assets was $2.8 million and $2.2 million for the three months ended September 30, 2013 and 2012, respectively. Amortization expense increased due to the acquisitions of Farmadiet, OURLab and Cytochroma, in August 2012, December 2012 and March 2013, respectively.

Other income and (expense), net . Other income and (expense), net for the three months ended September 30, 2013 and 2012 was ($38.9) million and ($0.1) million , respectively. During the three months ended September 30, 2013 , we recorded a $26.9 million non-cash other expense related to the changes in the fair value of the embedded derivatives in the 3.00% convertible senior notes, (the "Notes"), an $8.7 million loss on early partial conversion of the Notes and $0.7 million other expenses related to the changes in the fair value of the Pharmsynthez Note Receivable and Purchase Option and changes in the fair value of the options received in connection with our investment in Neovasc, Inc ("Neovasc"). Other income and (expense), net, for the three months ended September 30, 2013 , also included $3.4 million of interest expense principally related to interest incurred on the Notes and by the amortization of related deferred financing costs. For the three months ended September 30, 2012 , other income and (expense), net principally consisted of interest expense incurred in our Chilean and Farmadiet lines of credit, interest incurred related to the deferred payments in Farmadiet and foreign currency expense, partially offset by $0.2 million of other income recognized for the change in fair value of the warrants received in connections with our investment in Neovasc.

Loss from investments in investees . Loss from investments in investees was $1.6 million and $0.5 million for the three months ended September 30, 2013 and 2012, respectively. The increase in loss from investments in investees is primarily due to the result of increased research and development activities at our investees as well as the impact of including the activities of our recent investments in RXi Pharmaceuticals Corporation ("RXi") and Pharmsynthez.
Income taxes . Our income tax provision reflects the projected income tax payable in Israel, Chile, Spain and Canada. We have recorded a full valuation allowance against our deferred tax assets in the U.S. In May 2013, our Israeli API business elected a new tax regime, which sets its effective tax rate at 12.5% compared to a previous tax rate that was based on a ratio of revenue and turnover basis in the old tax regime, ranging from 10% to 25%.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

Revenues. Revenues for the nine months ended September 30, 2013 , were $75.8 million , compared to $30.8 million for the 2012 period. The increase in revenue principally reflected one-time, nonâ€“cash revenue of $12.5 million related to the transfer of substantially all of our assets in the field of RNA interference to RXi, and revenues related to the post September 30, 2012, acquisitions of OURLab and SciVac, and the acquisition of Farmadiet in August 2012, which contributed $8.4 million, $1.2 million and $11.5 million of revenue, respectively, during the nine months ended September 30, 2013 . Revenue from our Chilean operations increased $4.5 million during the nine months ended September 30, 2013 , primarily due to increased sales to government agencies. Revenue from our Israeli API business increased $3.8 million during the nine months ended September 30, 2013 , primarily related to increased sales to new and existing customers. Revenue from our Mexican operations decreased by $0.4 million during the nine months ended September 30, 2013 , primarily due to reduced sales to government institutions, partially offset by increased sales to private institutions due to a shift in the marketing strategy to focus sales on these institutions. . Revenue related to our molecular diagnostics collaboration agreements and license agreements, excluding the RXi revenue, increased $3.5 million during the nine months ended September 30, 2013 , compared to the 2012 period, primarily related to revenue recorded in connection to the Pharmsynthez collaboration agreements.

Cost of revenue . Costs of revenue for the nine months ended September 30, 2013 were $36.8 million , compared to $19.0 million for the 2012 period. Costs of revenue for the nine months ended September 30, 2013 , increased principally as a result of costs of revenue recorded by OURLab, SciVac and Farmadiet of $8.1 million, $2.8 million and $4.1 million, respectively, which businesses were acquired post September 30, 2012, with the exception of Farmadiet, which business was acquired in August 2012. Costs of revenue from our Israeli API business, our Chilean and Mexican operations increased $0.3 million, $2.0 million and $0.4 million, respectively, during the nine months ended September 30, 2013 , primarily related to a higher level of sales activity in our Israeli API business and in our Chilean operations and due to increased costs associated with a new distribution service center in our Mexican operations in order to improve quality and timing of deliveries.

Selling, general and administrative expenses . Selling, general and administrative expenses for the nine months ended September 30, 2013 , were $39.9 million , compared to $17.4 million for the 2012 period. The increase in selling, general and administrative expenses principally resulted from $13.0 million of such expenses recorded during the nine months ended September 30, 2013 , by Farmadiet, SciVac, OURLab, Cytochroma, OPKO Brazil and PROLOR, which businesses were acquired post September 30, 2012, with the exception of Farmadiet, which was acquired in August 2012. Excluding the selling, general and administrative expenses of Farmadiet and of the businesses acquired post September 30, 2012, selling, general and administrative expenses increased by $9.4 million during the nine months ended September 30, 2013 , principally as a result of increased personnel expenses and professional fees associated with our increased operations. Selling, general and administrative expenses during the nine months ended September 30, 2013 and 2012, include equity-based compensation expense of $4.7 million and $2.3 million, respectively.

Research and development expenses . Research and development expenses for the nine months ended September 30, 2013 and 2012, were $30.6 million and $12.9 million , respectively. The increase in research and development expenses during the nine months ended September 30, 2013 as compared to the 2012 period, principally resulted from an increase of $13.3 million related to the Cytochroma and PROLOR development programs, including $6.7 million related to the cost of ongoing Phase 3 clinical trials for Rayaldy TM and hGH-CTP. During the nine months ended September 30, 2013 and 2012, we recorded, as an offset to research and development expenses, $1.8 million and $0.9 million, respectively, related to research and development grants received and from our collaboration and funding agreements. Research and development expenses for the nine months ended September 30, 2013 and 2012, include equity-based compensation expense of $2.7 million and $1.0 million, respectively. The nine months ended September 30, 2013 includes an offset to research and development expenses of $2.7 million related to the correction of an error related to equity awards granted to non-employees with performance based vesting. The increase in equity-based compensation expense during the nine months ended September 30, 2013 , principally reflects the mark to market impact of Common Stock options granted to non-employees and the associated increase in the trading price of our Common Stock during the nine months ended September 30, 2013 .
Contingent consideration. Contingent consideration expenses for the nine months ended September 30, 2013 and 2012, were $4.2 million and $2.7 million , respectively. The increase in contingent consideration expense resulted from changes in the fair value of the contingent consideration liabilities due to the time value of money and the impact of changes in the underlying assumptions, if any, during the period. The contingent consideration liabilities relate to potential amounts payable to former stockholders of CURNA, OPKO Diagnostics, FineTech, Farmadiet and Cytochroma pursuant to our acquisition agreements in January 2011, October 2011, December 2011, August 2012 and March 2013, respectively.

Amortization of intangible assets. Amortization of intangible assets was $8.2 million and $6.3 million for the nine months ended September 30, 2013 and 2012, respectively. Amortization expense increased due to the acquisitions of Farmadiet, OURLab and Cytochroma in August 2012, December 2012 and March 2013, respectively.

Other income and (expense), net . Other income and (expense), net for the nine months ended September 30, 2013 and 2012, was ($46.0) million and $0.4 million , respectively. During the nine months ended September 30, 2013 , we recorded a $41.8 million non-cash charge, net, related to the changes in the fair value of the embedded derivatives in the Notes and an $8.7 million loss on early partial conversion of the Notes, partially offset by other income of $3.2 million related to changes in the fair value of the Pharmsynthez Note Receivable and Purchase Option and changes in the fair value of the warrants and options received in connection with our investment in Neovasc and by a gain of $10.8 million on the sale of certain of our investments available for sale . Other income and (expense), net, for the nine months ended September 30, 2013 , also included $10.1 million of interest expense primarily related to interest incurred on the Notes and by the amortization of related deferred financing costs. For the nine months ended September 30, 2012 , other income, net included $1.5 million of other income recognized from the change in fair value of the warrants received in connection with our investment in Biozone Pharmaceuticals, Inc., partially offset by other expense recognized for the decrease in fair value of warrants and options received in connections with our investment in Neovasc and the interest expense incurred by our Chilean and Farmadiet lines of credit.

Loss from investments in investees . Loss from investments in investees was $7.9 million and $1.5 million for the nine months ended September 30, 2013 and 2012, respectively. The increase in loss from investments in investees is primarily due to the result of increased research and development activities at our investees as well as the impact of including the activities of our recent investments in RXi and Pharmsynthez.

Income taxes . Our income tax provision reflects the projected income tax payable in Israel, Chile, Spain and Canada. We have recorded a full valuation allowance against our deferred tax assets in the U.S. On May 2013, our Israeli API business elected a new tax regime, which sets its effective tax rate at 12.5% compared to a previous tax rate that was based on a ratio of revenue and turnover basis in the old tax regime, ranging from 10% to 25%.
LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2013 , we had cash, cash equivalents and marketable securities of approximately $180.8 million . Cash used in operations during 2013 principally reflects expenses related to selling, general and administrative activities related to our corporate operations, research and development activities and our operations at SciVac, OPKO Brazil, PROLOR and Mexico, partially offset by cash provided from our operations at FineTech, Chile and Spain. Cash used in investing activities primarily reflects the net purchase of marketable securities of $25.0 million, the investments in RXi and Pharmsynthez of $13.3 million and capital expenditures of $3.0 million , partially offset by cash received from the sale of investments available for sale and from the sale of office space in Spain, and by net cash provided by business combinations of $20.5 million . Cash provided by financing activities primarily reflects the issuance of the Notes and $5.1 million received from Common Stock option and Common Stock warrant exercises. Since our inception, we have not generated sufficient gross margins to offset our operating and other expenses and our primary source of cash has been from the public and private placement of stock and credit facilities available to us.

On August 30, 2013, one of the conversion rights in the Notes was triggered. Holders of the Notes converted $16.9 million principal amount into 2,396,145 shares of our Common Stock at a rate of 141.4827 shares of Common Stock per $1,000 principal amount of Notes. We recorded an $8.7 million loss on early conversion of the Notes in Other income (expense), net in our Condensed Consolidated Statement of Operations. The Notes were convertible through September 6, 2013 and may be convertible thereafter, if one or more of the conversion conditions are satisfied.

In April 2013, we invested $9.6 million in exchange for approximately 13.6 million shares of Pharmsynthez common stock. Concurrent with our investment, Pharmsynthez also agreed to issue, at its option, approximately 12.0 million shares of its common stock or pay us Russian Rubles (â€śRURâ€ť) 265.0 million ($8.1 million) on or before December 31, 2013. We have a right to purchase additional shares in Pharmsynthez at a fixed price if Pharmsynthez pays us in RUR rather than the 12.0 million shares of Pharmsynthez common stock.

In January 2013, we issued $175.0 million of Notes. The Notes were sold in a private placement in reliance on exemptions from registration under the Securities Act. A $4.5 million discount was granted to the placement agent and an additional $0.4 million in deferred charges were recorded for professional fees related to the issuance. Net cash proceeds from the offering totaled $170.2 million. Interest on the Notes is payable semiannually on February 1 and August 1, beginning August 1, 2013. Holders of the Notes may require us to repurchase the Notes for 100% of their principal amount, plus accrued and unpaid interest, on February 1, 2019, February 1, 2023 and February 1, 2028, or following the occurrence of a fundamental change as defined in the indenture governing the Notes.

In connection with our acquisitions of CURNA, OPKO Diagnostics, FineTech and Cytochroma we agreed to pay future consideration to the sellers upon the achievement of certain events, including minimum cash payments of $5.0 million to the former stockholder of FineTech upon the achievement of certain sales milestones, of which $2.7 million was paid in March 2013; up to an additional $19.1 million in shares of our Common Stock to the former stockholders of OPKO Diagnostics upon and subject to the achievement of certain milestones; and up to an additional $190.0 million in either shares of our Common Stock or cash, at our option subject to the achievement of certain milestones, to the former shareholders of Cytochroma. In connection with the acquisition of Farmadiet, we agreed to pay an additional â‚¬3.4 million (US$4.6 million) in August 2013 and â‚¬3.4 million (US$4.6 million) in February 2014 in cash or shares of our Common Stock. On August 2, 2013, we issued 585,703 shares of our Common Stock to satisfy the August 2013 obligation. Further, upon the achievement of certain development milestones, we are obligated to issue 125,000 shares of our Common Stock and â‚¬0.8 million (US$1.1 million) in shares of our Common Stock or cash, at our option.

As of September 30, 2013 , we have outstanding lines of credit in the aggregate amount of $11.4 million with 15 financial institutions in Chile and Spain, of which $5.6 million is unused. The weighted average interest rate on these lines of credit is approximately 7.4% . These lines of credit are short-term and are generally due within three months. These lines of credit are used primarily as a source of working capital for inventory purchases. The highest balance at any time during the nine months ended September 30, 2013 , was $16.6 million. We intend to continue to enter into these lines of credit as needed. There is no assurance that these lines of credit or other funding sources will be available to us on acceptable terms, or at all, in the future.
We expect to incur losses from operations for the foreseeable future. We expect to incur substantial research and development expenses, including expenses related to the hiring of personnel and additional clinical trials. We expect that selling, general and administrative expenses will also increase as we expand our sales, marketing and administrative staff and add infrastructure.

We believe that the cash, cash equivalents, and marketable securities on hand at September 30, 2013 , which include the net proceeds from the Notes, and the amounts available to be borrowed under our lines of credit are sufficient to meet our anticipated cash requirements for operations and debt service beyond the next 12 months. We based this estimate on assumptions that may prove to be wrong or are subject to change, and we may be required to use our available cash resources sooner than we currently expect. If we acquire additional assets or companies, accelerate our product development programs or initiate additional clinical trials, we will need additional funds. Our future cash requirements will depend on a number of factors, including possible acquisitions, the continued progress of research and development of our product candidates, the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing, and our success in developing markets for our product candidates. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs or possible acquisitions.